“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

A response to Interfluidity

Steve Randy Waldman posted some criticisms of the market urbanist position on Interfluidity. The post was interesting, though I took issue with a few specific points. The following are my responses.

Regulatory Authority as a Property Right

The customary property rights surrounding homeownership in many cities and suburbs include much more than the use of a square of earth and whatever is built on it. Existing homeowners bought into particular neighborhoods in large part because of their “character”, which includes nice-sounding things like walkability or “charm”, as well as not-so-nice-sounding things like access to exclusionary education.

I don’t buy the idea that local control of zoning is a customary property right. A property right implies someone owns something in a definitive way and can make decisions as to the disposition of said something within whatever bounds are prescribed by law. Land use regulations don’t work that way. The relative influence over land use between two homeowners comes down to arbitrary factors like who’s more charismatic in the homeowner’s association or who shows up most frequently at planning meetings.

However, if we were to make authority over land use more like a property right, I might actually like that. Ideas like Tax Increment Local Transfers, state taxes on the municipal use of zoning authority, and municipal corporations with residual claimants move us to a world where authority over land use actually looks like something that can be bought, sold, and taxed. I’m partial to the idea of deregulation, but if reform means creating a market in which we can pay off NIMBYs, I can get behind that too.

The Normative Case Against Deregulation

“Zoning reform” is an anodyne way to describe an expropriation of those customary rights. It amounts to diminishing residents’ ability to preserve or control the evolution of their neighborhoods, in order to challenge the exclusivity on which the value of existing neighborhood amenities may be based.

I find this normatively unappealing. Honoring land use regulations on behalf of homeowners because that’s what they expected going in doesn’t seem to make for a strong ethical argument. Losses to aggregate productivity aside, we should consider the negative impacts upon the economically disadvantaged. I’ll be more than a little Rawlsian here and suggest the welfare of the least well off should disproportionately inform our motivations when setting public policy.

Rent Control

The Econ 101 case against rent controls only holds if the threat of controls prevents the market value of newly produced rentable properties from substantially exceeding the cost of development after regulatory hurdles have been overcome. [1] This is not what we observe in real life. Impaired prices are simply not the binding constraint on new development.

This is a valid. But it’s only refuting a part of the argument against rent control. The other parts include a disincentive to maintain rental properties and, more importantly, problems in the political economy of land use. Rent control is often seen as a way to combat high prices by people who think something can be made less dear by fiat alone. If price fixing is seen as a way to address affordability you eventually paint yourself into a corner along with Stockholm.

Capitalization of Rents

Surprisingly from an Econ 101 perspective, the best way to encourage housing supply might be to cap home prices, at a level sufficiently above physical construction cost to keep development profitable when consumption demand is strong, but no higher than that, to discourage the use of homes as speculative financial investments and to prevent scarcity rents from getting capitalized into prices.

Mr. Waldman does go on to clarify that he doesn’t support this as policy, but even on theoretical grounds I have to disagree. If we wanted to prevent economic rents–which I’m assuming is what he means by scarcity rents–from being capitalized into prices, a high land value tax would be our best bet.

Looking Abroad

Singapore never solved the problem we are banging our head against, how to take existing prosperous neighborhoods and make them more dense. It never tried. Instead, Singapore expanded its housing supply, at remarkable speed and scale, by building out extremely dense but nevertheless green, livable, and attractive “new towns“. Rather than restricting our attention to putting more housing in existing desirable neighborhoods, why not follow Singapore and build new neighborhoods, and when we run out of space for those, new ring cities?

Stephen Smith already left a great response to this on the Interfluidity blog, but one of his points bears repeating: Singapore has two housing markets; a subsidized one for Singaporeans and a market rate one with insanely high prices for foreigners. Singapore’s ability to limit demand via immigration policy and transfer land rents via its direct ownership of real estate might make it sui generis as far as urban housing policy goes.

Overall, this was an interesting post that definitely made me stop and think. If I’ve misinterpreted anything Mr. Waldman wrote, I hope he’ll take me to task in the comments below.

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About Jeff Fong

Jeff graduated from San Jose State University in 2011 where he studied Politics and Economics. For the last three years he's worked in startups focused on urban logistics and has become increasingly interested in urban economics as well as transportation policy. In 2016, Jeff co-founded Tech for Housing, a policy advocacy organization dedicated to mobilizing Bay Area tech workers on housing and transit issues.

Soho

Thanks for writing this! The first part of interfluidity’s post was a strong case for pessimism on the future of American housing markets, and my main source of optimisim is simply the fact that we have a lot of strong voices like yourself making the case for better policy. I don’t recall anyone like you, Matt Yglesias, or Ed Glaeser having any visibility a decade ago.

It also helps that it’s pretty easy to see where poor people are getting screwed (blue cities with ‘progressive’ politics and restrictive zoning) and where they’re moving as a result (Texas). I just have to have faith that someday people will notice the terrible outcomes of the current system.

Bob McGrew

The best case for density-limiting zoning is that it’s the solution to an externality problem. But externalities are reciprocal. Single-family zoning is the optimal solution when land prices are low. When land prices become very high, the optimal solution switches to everyone getting the rights to develop without limit.

There’s no “expropriation” or “property rights” involved. It’s just an economic arrangement to control externalities that can backfires when land prices rise dramatically. Then, the larger externality is the zoning control of your neighbors over what you can build on your property, not the congestion or aesthetic costs of denser buildings on them.

Why? Because I’ve seen the property-right version. It’s an easement. My parents have a set of easements over their neighbors property restricting what their neighbors can do; and likewise their neighbors have easements over their property. That’s a property right system.

It’s not a good system; to get rid of the anti-black segregationist easements, it required a Supreme Court case. But that’s what a property rights system for “neighborhood character” looks like.

calwatch

Which is kind of what Houston does, actually, although they have government civilly enforce these covenants instead of each individual property owner or HOA taking the others to court. An ideal libertarian system would eliminate said government enforcement and instead lenders or insurance companies would litigate such matters,

I’m a Market Urbanist in my views, but I recommend the works of William Fischel to understand the other side. I think a lot of people now see the General Plan of their city as the moral equivalent of CC&Rs. I’ve seen letters to the editor in my local paper that pretty much say this.

hcat

Unfortunately it’s very hard to rezone single family. It’s better to place the LULUs first, I think, including the sites eventually for denser housing, which is now a LULU; if the market is not ready for dense housing, you put trailer parks, not single family, in those areas.